Envisioning an urban market for conserved water in Southern California

Rethinking water distribution in Southern California

California is currently in the midst of the fourth consecutive year of one of the worst droughts in the state's history. With the severity of the drought increasing, Governor Brown has recently instituted a mandatory 25% reduction for urban water users. Yet for many urban water agencies in Southern California, it seems there has been little change in water use. One year after Governor Jerry Brown's initial plea for a voluntary 20% reduction in water usage, the South Coast region, which contains almost 20 million people, or about half of the state's population, had reduced their use by a mere 5%, the smallest regional reduction in the state.Meanwhile, forward-thinking water agencies that do invest heavily in conservation well before these times of drought are finding it does them little good. Our client, the Long Beach Water Department, is one Southern California agency that has proactively worked to change water use behavior over the last three decades. Through aggressive water conservation programs, Long Beach has reduced its water use to the lowest it has been since 1958, despite an increasing population. However, when agencies like Long Beach work hard to reduce their demand before a drought, a call for further reduction puts additional burden on them because they have already uncovered the easiest and cheapest opportunities for conservation. In addition, the current system of allocating water supply in Southern California suggests that when supplies become limited, the water supply they are allowed to purchase will be reduced even further. The conservation Long Beach has done to date causes them to receive less water in times of drought than if they had not conserved at all.

Our research examines the implications of water conservation on water allocation in Southern California. In this paper we consider two questions:

How does the way water is currently allocated in Southern California encourage conservation?

How could we develop a new allocation system to promote conservation, and how would the new system compare to the current system?

Our exploration of the current system revealed that under the status quo, agencies are better off increasing their water demand in advance of a drought in order to secure a larger share of supply during a shortage, rather than conserving water to prepare for when supplies are limited. Ironically, this behavior also increases the probability of depleting the available supply faster and further exacerbate the effects of the drought.

However, through our research we have uncovered potential opportunities to encourage wide-scale conservation through a re-envisioning of the system of water allocation. Our approach provides predictable, secure, and transferable shares to water that promote conservation, not just in times of drought, but during all supply conditions. By using a system of allocation that turns conservation actions into an asset, and applying market mechanisms to facilitate the trade of conserved water, we believe we can incentivize conservation to achieve more efficient water use, provide economic and environmental benefits, and strengthen our ability to deal with drought now and many years to come.

We are a group of masters students at the Bren School of Environmental Science & Management at the University of California, Santa Barbara with a dedication to water resource management, water policy and economics in the western US: